1. If you apply a breakeven analysis to two mutually exclusive projects that have the same revenues but different costs, which of the following criteria would you use to determine the range over which one project is better than another?

a) maximum criterion

b) minimum criterion

c) minimum and maximum criteria

d) none of these answers.

2. Scenario analysis allows an analyst to examine the sensitivity of a summary measure (e.g., Present Worth) to changes to individual project parameters.

a) True

b) False

3. What is the variable production cost of making 10,000 car parts? a) $50,000

b) 100,000

c) 150,000

d) None of these answers.

4. What is the fixed production cost of making 10,000 car parts? a) 50,000 + 5x

b) 50,000

c) 25x

d) None of these answers.

5. What is the breakeven point between buying and making car parts?

a) 25

b) 2,500

c) Cannot be determined from the information given.

d) None of these answers.

6. Over what range is it cheaper (less costly) to make car parts?

a) Less than the breakeven point

b) More than the breakeven point

c) At the breakeven point

d) None of these answers.

7. In an uncertain future environment, the decision-maker has sufficient information to determine the probability of occurrence of future events or outcomes.

a) True

b) False

8. When an analyst examines the impact of changing one project parameter at a time on a summary measure (e.g., Present Worth), the analyst is performing

a) Breakeven analysis

b) Capital rationing

c) Scenario analysis

d) None of these answers.

Projects	QUESTIONS 9 to 11 NPW of Profits Future States of Nature
	W	X	Y	Z
A	20	15	16	18
B	16	10	12	20
C	12	19	14	11
D	17	10	9	14
E	11	14	8	10

9. Based on the Laplace principle, the best project is

a) A

b) B

c) C

d) D

e) E

10. Based on the Hurwicz principle (with an index of optimism = 0.6), the best project is

a) A

b) B

c) C

d) D

e) E

11. The Maximax and Hurwicz principles are identical if the index of optimism is equal to

a) 0

b) 0.5

c) 1

d) 2

e) None of the above answers.

The firm gets a $100,000 loan (at a 10% rate of interest) which is repaid as follows:
Loan Repayment at End of Year	Percentage of Loan Repaid
1	20%
2	30%
3	50%

	Years
Item	0	1	2	3
1. BTCF (Actual $)	-200,000	AA	BB
2. BTCF (Constant $)	CC	DD	EE
3. Interest on Loan
4. Depreciation
5. Taxable Income
6. Taxes Payable
7. ATCF (Actual $)
8. ATCF (Constant $)	FF
9. Repayment of Loan
3. Interest on Loan
10. CFOE (Actual $)
11. CFOE (Constant $)	GG

12. The dollar value of AA is a) 200,000

b) 200,000(1+0.05)-1

c) 200,000(1+0.10)-2

d) 200,000(1+0.15)-3

13. The dollar value of BB is

a) 300,000(1.05)-100,000(1.03)-1

b) 300,000-100,000

c) 300,000(1.05)-100,000(1.03)

d) 300,000(1.05)-1-100,000(1.03)-1

14. The dollar value of CC is

a) -200,000

b) -200,000(1+0.05)

c) -200,000(1+0.05)-1

d) -200,000(1+0.05)-2

e) None of the above answers.

15. The dollar value of DD is a) 200,000

b) 200,000(1+0.05)-1

c) 200,000(1+0.10)-2

d) None of these answers.

16. The dollar value of EE is

a) 300,000(1.05)-100,000(1.03)

b) 300,000-100,000

c) {300,000(1.05)-100,000(1.03)}(P/F,5%,2)

d) 300,000(1.05)-1-100,000(1.03)-1

17. The dollar value of FF is

a) -200,000

b) -200,000(1+0.05)

c) -200,000(1+0.05)-1

d) -200,000(1+0.05)-2

e) None of the above answers.

18. The dollar value of GG is

a) -200,000

b) -100,000

c) -200,000(1+0.05)

d) -100,000(1+0.05)

e) None of the above answers.

19. What is Mary’s precise nominal (with inflation) rate of interest on the GIC? a) Solve for i* from 20,000 = 1,300(P/A,i*,5)

b) 100(1,300/20,000)

c) 5.00%

d) 6.5%

20. What is Mary’s precise real (inflation-free) rate of interest on the GIC?

a) (1+nominal rate)(1+inflation rate) -1

b) Nominal rate – inflation rate

c) {(1+nominal rate) ÷ (1+inflation rate)} - 1

d) Inflation rate (=5.00%)

e) None of these answers

21. If the annual interest income Mary receives from the GIC can be reinvested at the nominal rate in question 18 during the 5-year life of the GIC, what will be the value of her $20,000 investment and interest income on December 31, 2014 in current (nominal) dollars?

a) $20,000(P/F,nominal rate,5)

b) $20,000(F/P,nominal rate,5)

c) $1,300(F/A,nominal rate,5)5

d) $20,000+5(1,300)

e) None of the above answers.

22. What is the inflation-free dollar value of the interest income Mary receives at the end of the 4th year (i.e., on December 31, 2013)?

a) $1,300(P/F,5%,3)

b) $1,300(P/F,5%,4)

c) $1,300(F/P,5%,4)

d) $1,300(F/A,5%,4)

e) None of these answers.

QUESTIONS 23 TO 30 P = $100,000; SV = $10,000; AR = $100,000 AC = $50,000; N = 10 years; MARR = 10%
PRESENT WORTH VALUES
	-15%	-10%	-5%	Base Case	5%	10%	15%
P ($)	AA
SV ($)
AR ($)							BB
AC ($)
N (yrs)		CC
MARR (%)						DD

23. The Present Worth of cell AA is

a) -100,000+(100,000-50,000)(P/A,10%,10)(1.15)+10,000(P/F,10%,10)

b) -100,000(1.15)+(100,000-50,000)(F/A,10%,10)+10,000(P/f,10%,10)

c) -100,000(0.85) + (100,000-50,000)(P/A,10%,10)+10,000(P/F,10%,10)

d) -100,000(0.85)+(100,000-50,000)(P/A,10%,10)+10,000(0.85)(P/F,10%,10)

e) None of the above answers.

24. The Present Worth of cell BB is

a) -100,000+(100,000-50,000)(P/A,10%,10)(1.15)+10,000(P/F,10%,10)

b) -100,000(1.15)+(100,000-50,000)(F/A,10%,10)+10,000(P/f,10%,10)

c) -100,000 + (100,000(1.15)-50,000)(P/A,10%),10)+10,000(P/F,10%,10)

d) -100,000+(100,000-50,000)(P/A,10%(1.1),10)+10,000)(P/F,10%(0.9),10)

e) None of the above answers.

25. The Present Worth of cell CC is

a) -100,000+(100,000-50,000)(P/A,10%,10)(1.15)+10,000(P/F,10%,10)

b) -100,000+(100,000-50,000)(P/A,10%,10(0.9))+10,000(P/F,10%,10(o.9))

c) -100,000(0.85) + (100,000-50,000)(P/A,10%,10)+10,000(P/F,10%,10)

d) -100,000(0.85)+(100,000-50,000)(P/A,10%,10)+10,000)(0.85)(P/F,10%,10)

e) None of the above answers.

26. The Present Worth of cell DD is

a) -100,000+(100,000-50,000)(P/A,10%(1.1),10)+10,000(P/F,10%(1.1),10)

b) -100,000(1.15)+(100,000-50,000)(F/A,10%,10)+10,000(P/F,10%,10)

c) -100,000(0.85) + (100,000-50,000)(P/A,10%,1